Assignment of Act 201

Department of Finance and Accounting

Student Name: Mirza Asir Intesar

Student ID No: 1911615030
Section: 02
Course name and code: ACT 201
Submitted to TSA
Date of Submission: 26/08/2019
1.a) Anna Car Repairing Shop
Journal Entries
For the month ended 31 January 2018

Date Accounts Title and Explanation Ref Debit ($) Credit ($)

Jan 1 Cash 1,00,000

Owner’s Capital 1,00,000
(As invested in the business)

Jan 2 Prepaid Rent expense 36,000

Cash 36,000
(As paid rent in advance)

Jan 3 Equipment 80,000

Cash 60,000
Notes Payable 20,000
(As purchased on cash and on notes
payable)

Jan 4 Office Supplies 17,600

Accounts Payable 17,600
(As purchased on account)

Jan 13 Cash 28,500

Service Revenue 28,500
(As provided service)

Jan 13 Accounts Payable 17,600

Cash 17,600
(As paid accounts payable)
Jan 14 Salaries and Wages expense 19,100
Cash 19,100
(As paid wages)

Jan 18 Cash 32,900

Account Receivable 21,200
Service Revenue 54,100
(As provided service on cash and on
account)

Jan 23 Cash 15,300

Account Receivable 15,300
(As received money from customers)

Jan 25 Cash 4,000

Unearned Service Revenue 4,000
(As received payment in advance)

Jan 26 Office Supplies 5,200

Accounts Payable 5,200
(As purchased on account)

Jan 28 Utilities expense 19,000

Cash 19,000
(As paid water bill)

Jan 31 Advertising expense 5,000

Cash 5,000
(As paid for advertising)

Jan 31 Utilities expense 2,470

Accounts Payable 2,470
(As received electricity bill)
Jan 31 Telephone expense 1,494
Accounts Payable 1,494
(As received telephone bill)

Jan 31 Miscellaneous expense 3,470

Cash 3,470
(As paid during the month)

b) Anna Car Repairing Shop

Ledger Accounts
For the month ended 31 January 2018

Cash
Date Details $ Date Details $
Jan 01 Owner’s Capital 100,000 Jan 02 Prepaid Rent expense 36,000
Jan 13 Service Revenue 28,500 Jan 03 Equipment 60,000
Jan 18 Service Revenue 32,900 Jan 13 Accounts Payable 17,600
Jan 23 Accounts Receivable 15,300 Jan 14 Salaries and Wages 19,100
Jan 25 Unearned Service 4000 expense
Revenue Jan 28 Utilities expense 19,000
Jan 31 Advertising expense 5000
Jan 31 Miscellaneous expense 3470
Jan 31 Balance C/D 20,530

180,700 180,700

Owner’s Capital
Date Details $ Date Details $
Jan 31 Balance C/D 100,000 Jan 01 Cash 100,000

100,000 100,000
 Prepaid Rent expense
Date Details $ Date Details $
Jan 02 Cash 36,000 Jan 31 Balance C/D 36,000

36,000 36,000

Equipment
Date Details $ Date Details $
Jan 03 Cash 60,000 Jan 31 Balance C/D 80,000
Jan 03 Notes Payable 20,000

80,000 80,000

Notes Payable
Date Details $ Date Details $
Jan 31 Balance C/D 20,000 Jan 03 Equipment 20,000

20,000 20,000

Supplies
Date Details $ Date Details $
Jan 04 Accounts Payable 17,600 Jan 31 Balance C/D 22,800
Jan 26 Accounts Payable 5200

22,800 22,800
 Accounts Payable
Date Details $ Date Details $
Jan 13 Cash 17,600 Jan 04 Supplies 17,000
Jan 31 Balance C/D 9,164 Jan 26 Supplies 5200
Jan 31 Utilities expense 2470
Jan 31 Telephone expense 1494

26,764 26,764

Service Revenue
Date Details $ Date Details $
Jan 31 Balance C/D 82,600 Jan 13 Cash 28,500
Jan 14 Cash 32,900
Jan 15 Accounts Receivable 21,200

82,600 82,600

Salaries and Wages expense

Date Details $ Date Details $
Jan 14 Cash 19,100 Jan 31 Balance C/D 19,100

19,100 19,100

Accounts Receivable
Date Details $ Date Details $
Jan 18 Service Revenue 21,200 Jan 23 Cash 15,300
Jan 31 Balance C/D 5900

21,200 21,200
 Unearned Service Revenue
Date Details $ Date Details $
Jan 31 Balance C/D 4000 Jan 25 Cash 4000

4000 4000

Utilities expense
Date Details $ Date Details $
Jan 28 Cash 19,000 Jan 31 Balance C/D 21,470
Jan 31 Accounts Payable 2470

21,470 21,470

Advertising expense
Date Details $ Date Details $
Jan 31 Cash 5000 Jan 31 Balance C/D 5000

5000 5000

Telephone expense
Date Details $ Date Details $
Jan 31 Accounts Payable 1494 Jan 31 Balance C/D 1494

1494 1494

Miscellaneous expense
Date Details $ Date Details $
Jan 31 Cash 3470 Jan 31 Balance C/D 3470

3470 3470
(c)
Anna Car Repairing Shop
Trial Balance
For the month ended January 31, 2018

Number Account Name Debit ($) Credit ($)

1 Cash 20,530
2 Equipment 80,000
3 Supplies 22,800
4 Telephone expense 1,494
5 Utilities expense 21,470
6 Advertising expense 5,000
7 Miscellaneous expense 3,470
8 Accounts receivable 5,900
9 Salaries and Wages expense 19,100
10 Prepaid Rent expense 36,000
11 Unearned Service Revenue 4,000
12 Accounts Payable 9,164
13 Owner’s Capital 100,000
14 Service Revenue 82,600
15 Notes Payable 20,000
21,5764 21,5764

(d) Anna Car Repairing Shop

Income Statement
For the month ended January 31, 2018
$ $
Revenue

Service Revenue 82,600

_______
Total service revenue 82,600

Expenses
Telephone expense 1,494

Utilities expense 21,470

Advertising expense 5,000

Miscellaneous expense 3,470

Salary and wages expense 19,100

_______
Total expenses
(50,534)
_______
Net Income
32,066

Anna Car Repairing Shop

Balance Sheet
For the month ended January 31, 2018
$ $
Assets
Current Assets:

Cash 20,530
Accounts Receivable 5,900
Prepaid Rent 36,000
Office Supplies 22,800
_______
Total current asset 85,230

Fixed Asset:

Equipment 80,000
________
Total Assets 1,65,230

Liabilities & Owner’s Equity

Current Liabilities:
Accounts Payable 9,164
Unearned service revenue 4,400
_______
Total current liabilities
13,164

Long-Term Liabilities:
Notes Payable
20,000
Total Liabilities
33,164
Owner’s Equity
Beginning capital
100,000
 Add: Net Income 32,066
_________
Total Owner’s Equity 1,32,066
__________
Total liabilities & owner’s equity 1,65,230

2.
a) Cost Principle – An accounting principle that states that companies should
record assets at their cost. For example, when a retailer purchases inventory
from a vendor, it records the purchase at the cash price that was actually paid.

b) Economic Entity Assumption – The economic entity assumption states that

every economic entry can be separately identified and accounted for. In order to
assess a company’s performance and financial position accurately, it is
important to not blur company transactions with personal transactions or
transactions of other companies. Examples are hospitals, companies,
municipalities and federal agencies.

c) Monetary Unit Assumption – The monetary unit assumption states that only
those things that can be expressed in money are included in the accounting
records. This means that certain important information needed by investors,
creditors and managers, is not reported in the financial statements. For example,
Modern Furniture owns a factory that it had acquired in 1952 along with the
surrounding land. The acquisition cost was $30,000. It is now worth a far
greater amount. But the factory continues to be valued at its original cost in the
company’s books of accounts.

d) Going Concern – The going concern assumption states that the business will
remain in operation for the foreseeable future. An example of the application of
going concern concept of accounting is the computation of depreciation on the
basis of expected economic life of fixed assets rather than their current market
value. Companies assume that their business will continue for an indefinite
period of time and the assets will be used in the business until fully depreciated.
e) Periodicity – Periodicity means that accountants will assume that a
company's complex and ongoing activities can be divided up and reported in
annual, quarterly and monthly financial statements.

f) Revenue Recognition Principle - The revenue recognition principle is an

accounting principle that requires revenue to be recorded only when it is earned.
It means that revenues or income should be recognized when the services or
products are provided to customers regardless of when the payment takes place.

g) Matching Concept - The matching concept represents the primary differences

between accrual accounting and cash basis accounting. "Matching" means that
firms report revenues and the expenses that brought them in the same period.

h) Accrual Basis of Accounting - The accrual basis of accounting is a system of

recognizing revenues and expenses when they are incurred instead of focusing
on when they are paid or collected.

i) Dual Aspect of Accounting - The dual aspect concept states that every
business transaction requires recordation in two different accounts. This concept
is the basis of double entry accounting, which is required by all accounting
frameworks in order to produce reliable financial statements.

3. a) Baker Corporation
Cash Flow Statement
For the year ended December 31, 2015
 $ $
Cash flow from operating activities
Net Income 106000
Depreciation expense 30000
Decrease in Accounts Receivable 30000
Increase in Inventory (140000)
Increase in Accounts Payable 70000
Increase in Notes Payable 20000
Net cash inflow from operating activities 116000
Cash flow from investing activities
Purchase of equipment (40000)
Net cash outflow from investing activities (40000)
Cash flow from financing activities
Cash dividend paid (76000)
Decrease in long term debt (30000)
Net cash outflow from financing activities (106000)
Net decrease in cash (30000)
Add: Opening cash balance 70000
Closing cash balance 40000

3.b)
Current asset
(i) Current ratio =
Current liabilities

Cash + accounts receivable + inventory

=
Accounts payable + notes payable + accrued expenses

$40,000+$320,000+$460,000
=
$390,000+$110,000+$20,000

$820,000
=
$520,000

= 1.58:1

The ratio of 1.58:1 means that for every dollar of current liabilities, Quality has
$1.58 of current assets.

Cash+ Short Term Investments+ Accounts receivable

ii) Quick ratio = Current Liabilities

$40,000+$320,000
=
$390,000+$110,000+$20,000

$360,000
=
$520,000

= 0.69:1

The ratio of 0.69:1 means that for every dollar of current liabilities there is
immediate $0.69 of current assets.

Net credit sales

(iii) Accounts receivable turnover =
Average accounts receivable
 $2,200,000
=
($350,000+$320,000)/2

$2,200,000
=
$335,000

= 6.57 times

365
Accounts receivable turnover in days = 6.57

= 56 days
The accounts receivable is to be collected within average 56 days or 8 weeks.

Net income
(iv) Profit margin =
Net sales

$106,000
=
$2,200,000

= 4.82 %

The ratio shows how well the company is maintaining their expenses. Here, for

every $100 of sales the company is retaining a profit of $4.82.

Net sales
(v) Asset turnover =
Average total assets

$2,200,000
=
($1,110,000+$1,200,000)/2

$2,200,000
=
$1,155,000
 = 1.90 times

The ratio shows for every $1 asset they are getting a return of $1.90.

Net income
(vi) Return on asset (ROA) =
Average total assets

$106,000
=
($1,110,000+$1,200,000)/2

= 9.18 %

This shows how well the company is utilizing their asset to make profit for

every $100 of the company is generating a return of $9.18.

vii) Net income

Return on common stockholder’s equity =
Average common stockholders’ Equity

$106,000
=
{($360,000) + ($330,000)}/2

$106,000
=
$345,000

= 30.7 %

This ratio shows how well the company is using the shareholder’s money to
generate profit. Here, for $100 invested by the shareholders the company is
generating a profit of $30.7.
Total liability
(viii) Debt to Asset =
Total asset
 $840,000
=
$1,200,000

= 70 %

This ratio shows how much of the total asset is funded by debt. 70% of the total
asset is funded by debt and the rest is funded by equity.

Income before income taxes and interest expenses

(ix)Times interest earned ratio =
Interest expense

$151,000 + $29,000
=
$29,000

$180,000
=
$29,000

= 6.21 times

The ratio shows the capability the company has for paying their interest
expenses. The profit the company is making will enable them to pay the interest
expense 6.21 times.